Spot resin trading remained on the slow side and sellers were notably more aggressive than buyers. The flow of offers was relatively heavy and material accumulated as the week of Oct. 17 wore on, which pressured the market, reports the PlasticsExchange (Chicago) in its Market Update. PE prices skidded, particularly at the end of the week; HDPE grades sustained sharp losses, which also spurred some sales. Transacted volumes were significantly skewed toward polyethylene (PE) rather than polypropylene (PP). PP prices also slid; lower levels and still ample availability seem to scare and scatter buyers.
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The spot PE market was weak, as material availability continued to improve, sending prices lower. Spot PE has been pressured ever since producers secured the $0.05/lb price increase in September. Without any impetus to drive prices higher, the market lost its upward momentum and has been sliding since. This past week, commodity grade PE resins dropped about $0.02/lb on average; certain HDPE grades fell as much as $0.03/lb, while LLDPE for injection shaved just a cent. Most commodity grades have now come off about $0.04/lb from the late September peak.
Planned and unexpected maintenance on steam crackers and resin reactors restricted production during August and September, leading to a huge upstream PE inventory drawdown estimated at upwards of 400 million lb. These tight supplies helped producers implement their nickel increase; however, with units returning back online, monomer supplies have improved and resin, which has lagged, is starting to follow suit. Market participants are beginning to talk about contract price relief in November, writes the PlasticsExchange, while producers will not be eager to give up any of their recent increase. A $0.03/lb decrease could be possible.
Resellers were early to view the market as fully extended and have been liquidating inventories while shying away from additional purchases unless an order is in hand. Therefore, warehoused material and uncommitted forecast railcars have been competing with direct producer offerings, hence the large spot discount which has been developing to contract pricing. Some resellers also seem to be taking orders short, expecting to purchase material at favorable costs before customer delivery is required.
The PP market continues to transact in a choppy manner. Since the beginning of the summer, the PlasticsExchange has seen several false start moves to the upside, only bringing small rallies that could not be sustained. This past week, the market erased the hard-fought penny gain built over the previous half-month. Off-grade material has eroded even more and a fairly large discount has developed. Although PP producers have endured $0.13/lb of contract PGP monomer price increases since June, they have been unable to pass through the bulk of the increases to resin buyers, as the market has been riddled with oversupply.
Despite increase nominations, the market has not been cleared of the excess supply overhang. Reactor utilization rates have averaged around 94% during the trailing 12 months. PP production was finally curtailed a bit last month, but the effect on availability has yet to be seen. While processors have recognized this historically favorable pricing, high production rates and continually plentiful resin has removed their fear of a huge price increase sticking, thus limiting their large inventory build. With spot monomer costs easing back these past few weeks, some of the cost-push argument has been alleviated.
Read the full Market Update on the PlasticsExchange website.